The Company's RevPAR was $95.15, a decrease of 3.7 percent compared to the same period in 2009.
DiamondRock Hospitality Company (NYSE: DRH) announced results of operations for its first fiscal quarter ended March 26, 2010. The Company is a lodging focused real estate investment trust that owns twenty premium hotels in North America.
First Quarter 2010 Highlights
"First quarter results were above our internal expectations and we experienced positive momentum in almost all of our customer segments. The current forecast for the balance of 2010 is also ahead of our original expectations. With our premium portfolio of hotels, as well as significant investment capacity, we are well positioned to both enjoy the recovery in fundamentals and seek attractive acquisition opportunities," stated Mark W. Brugger, Chief Executive Officer of DiamondRock Hospitality Company.
Operating Results
For the first quarter beginning January 1, 2010 and ended March 26, 2010, the Company reported the following:
The relatively modest decline in first quarter RevPAR reflects the strengthening of lodging fundamentals. After a year and a half of negative industry RevPAR, March 2010 was the first month to generate positive RevPAR for the Company's portfolio since April 2008. The Company's group booking trends are improving. Group booking pace is down 3% compared to the same time last year, which improved during the quarter from 8% down at the end of 2009.
The Company reported strong food and beverage profits during the first quarter. Despite a $1.3 million decrease in food and beverage revenues, profits from food and beverage increased approximately $0.5 million due to a 250 basis point improvement in profit margins compared to the same period in 2009. The positive food and beverage results were driven by exceptional results at Frenchman's Reef and the Vail Marriott.
During the first quarter, the Company continued its aggressive cost containment program. As a result, despite the 3.7% decline in RevPAR, the Company's first quarter Hotel Adjusted EBITDA margins declined only 101 basis points compared to the same period in 2009. Evidence of the success of some of these initiatives is as follows:
As of the end of first quarter, the Company has approximately $181.4 million of unrestricted cash on hand and $785.3 million of debt outstanding, which consists solely of fixed rate, property-specific mortgage debt with no near-term maturities. Ten of the Company's 20 hotels are unencumbered by mortgage debt and the Company's $200 million senior unsecured credit facility is unused.
The Company continues to maintain its straightforward capital structure. As of March 26, 2010, the Company continued to own 100% of its properties directly.
Frenchman's Reef Loan Modification
The Company amended certain provisions of the limited recourse mortgage loan secured by Frenchman's Reef during the first quarter. The lender provided the Company with a waiver for any penalty interest and an extension to December 31, 2010 and December 31, 2011, respectively, for the completion date of certain lender required capital projects. The Company pre-funded the capital projects into an escrow account and paid the lender a modification fee of approximately $150,000. As a result of the modification, the Company reversed the $3.1 million accrual for penalty interest during the first quarter.
Frenchman's Reef Tax Holiday Status
Frenchman's Reef is owned by a subsidiary that has elected to be treated as a taxable REIT subsidiary, and is subject to USVI income taxes. The Company was party to a tax agreement with the USVI that reduced the income tax rate to approximately 4%. This arrangement expired on February 14, 2010. The Company is diligently working with the USVI authorities to extend this agreement, which, if extended, will be given retroactive treatment to the date of expiration. Although the Company believes that it will be successful in obtaining the tax holiday extension, there can be no assurances that an extension will be granted. If the tax holiday is not extended, the income generated by Frenchman's Reef will be subject to an income tax rate of 37.4%.
New Line of Credit
The Company has reached agreement on a term sheet with certain lenders for a new $200 million unsecured credit facility with a four year term, including a one year extension option. There can be no assurances, however, that the Company will enter into the proposed credit facility as it remains subject to a variety of conditions, including the negotiation and execution of definitive loan agreements satisfactory to us and the lenders and the satisfaction of closing conditions.
Outlook
The Company is providing full year guidance at this time, which is based substantially upon the recent operating forecasts prepared by its hotel operators. The Company is not providing quarterly guidance. Achievement of the anticipated results is subject to the risks disclosed in the Company's filings with the Securities and Exchange Commission.
For the full year 2010, the Company's outlook is as follows:
On January 29, 2010, the Company paid a dividend of $0.33 per share, which represented 100% of its 2009 taxable income. The Company relied on the Internal Revenue Service's Revenue Procedure 2009-15, as amplified and superseded by Revenue Procedure 2010-12, that allowed it to pay 90% of the dividend in shares of its common stock and the remainder in cash. The Company paid the dividend in the form of approximately $4.3 million in cash and 3.9 million shares of its common stock. The Company intends to declare its next dividend, if any, on a date close to December 31, 2010.
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